Enhanced Cash Flow Valuation in Real Estate Management by Integrating Innovative Materials and Risk Assessment

Bergmann, Patrick, Kamarás, Endre, Gleißner, Werner and Guenther, Edeltraud, (2020). Enhanced Cash Flow Valuation in Real Estate Management by Integrating Innovative Materials and Risk Assessment. Sustainability, 12(6), 1-26

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  • Sub-type Journal article
    Author Bergmann, Patrick
    Kamarás, Endre
    Gleißner, Werner
    Guenther, Edeltraud
    Title Enhanced Cash Flow Valuation in Real Estate Management by Integrating Innovative Materials and Risk Assessment
    Appearing in Sustainability
    Volume 12
    Issue No. 6
    Publication Date 2020-03-12
    Place of Publication Basel, Switzerland
    Publisher MDPI
    Start page 1
    End page 26
    Language eng
    Abstract Environmental criteria have become a critical issue for the evaluation of projects and products, particularly for businesses with extensive life cycles. Sustainability criteria and project risk management are underexplored in real estate development, and thus endanger business survival. The aim of this article is to improve the understanding of uncertainties in the real estate industry by using a stochastic risk assessment approach and to broaden the risk assessment methodology. Thus, this article investigates the importance of material selection regarding external and project risk for real estate development. Aside from conventional projects, risks are analyzed for projects with high-quality materials (HQMs) that are characterized by environmental benefits. In following a mixed method approach, we began by conducting interviews with developers about the most important risks, and later incorporating these factors into a stochastic cash-flow model. Finally, we illustrated our findings in a case study. Overall, the highest risks were shown from resource prices and changing regulations, while the rankings of the two materials differ slightly; HQMs rank higher on the created risk index than conventional materials. The cash-flow model shows that conventional materials perform slightly better than HQMs, although uncertainties within the calculations are similar. The article contributes to risk management and decision-making for real estate projects by providing insights into the discussion and analysis of the financial performance of sustainable construction material and design that might be crucial for disruptive innovations. We present a model that integrates environmental and long-term effects in the cash-flow evaluation of real estate projects, thereby increasing managerial flexibility.
    Keyword Risk analysis
    Economic–environmental sustainability evaluation
    Material selection
    Decision making
    Green construction
    Real estate development
    Cash flow model
    Copyright Holder The Authors
    Copyright Year 2020
    Copyright type Creative commons
    DOI 10.3390/su12062201
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    Created: Fri, 21 Aug 2020, 00:21:14 JST by Eric Siegmund on behalf of UNU FLORES